TIER cautious on economy next year

FREEZING COLD:：The think tank cut its GDP forecast for this year to 1.16 percent from 2.41 percent and forecast 3.42 percent growth for next year due to the base effect

By Amy Su / Staff reporter

Wed, Nov 07, 2012 - Page 13

The Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) yesterday maintained a cautious outlook on the nation’s economy next year, amid continuous weak sentiment over the manufacturing sector and sluggish government investment.

The Taipei-based think tank yesterday set its forecast for GDP growth next year at 3.42 percent, mainly because of the base effect. The institute also cut the GDP growth forecast for this year to 1.16 percent from the 2.41 percent it estimated in July.

“The current economy is hobbled by ‘freezing’ sentiment in both external and internal sectors,” TIER president David Hong (洪德生) told a media briefing.

Gordon Sun (孫明德), director of the institute’s economic forecasting center, said the nation has been waiting to see its economy reach the bottom since the first quarter this year, with sentiment turning from “cold” to “freezing.”

However, global economic uncertainties, such as the looming fiscal cliff in the US and the debt problem in Europe will remain a drag on the economy next year by pulling down exports, Sun said.

In addition, the continuous contraction in government investment may be another contributing downside factor, Sun added.

Based on TIER’s forecast, exports are expected to contract by 2.4 percent this year from last year. Private investment is expected to drop 1.94 percent, while private consumption increases by 0.96 percent.

On the consumer price front, the institute forecast that the consumer price index (CPI) would show a moderate growth of 1.34 percent next year.

It expected headline inflation to rise 1.99 percent this year, nearing the 2 percent alarm mark set by the government and also up from the 1.84 percent previously estimated, TIER data showed.

The key figure to look at to determine if full-year growth in inflation could be below 2 percent “will be the annual growth in headline inflation for this month,” Sun said.

According to data from the Directorate-General of Budget, Accounting and Statistics (DGBAS), the CPI grew at a rate of exactly 2 percent year-on-year in the first 10 months.

In related news, Credit Suisse research analyst Christiaan Tuntono said in a research note that postponing the fuel and electricity price hike next month should further help headline inflation to moderate to about 2 percent toward the end of the year.

Leong Wai Ho (梁偉豪), a Singapore-based economist at Barclays Capital, said the brokerage house expects price pressures to ease gradually in the last two months of the year, with annual growth in headline inflation likely to end the year at 2.2 percent.

Given the overall policy considerations, Leong said the central bank may keep major policy rates on hold at its quarterly monetary policy meeting next month, and continue to hold the rates steady for next year providing the global economy does not deteriorate further.